BAE Systems EADS Merger On The Verge Of Collapse

Reports are circulating that everybody disagreed with everybody over the negotiations for $45 billion merger of EADS NV (EPA:EAD) and BAE Systems plc (LON:BA). The report of the collapsed merger originated from the German newsgroup, Der Spiegel. The story says that Britain was opposed to allowing any one country to own more than 10 percent of the merged company’s stock, while France was adamant in its stance that such a clause was restrictive, and it planned to buy more shares later on.

The failure in reaching any agreement, and the end of discussions has been denied by BAE Systems plc (LON:BA). It said that if these rumors were true, the company would have issued an official statement to the LSE by now.

“The deal is not off, and we continue to work towards the 10th October deadline set by the UK Takeover Panel,” a spokesman said on Friday.

The French counterparts have also regarded these reports as false, German officials declined to comment. On the other side, a letter, signed by 45 conservatives, was submitted to David Cameron, which urged the Prime Minister to block all state owned stakes by France and Germany in the merged company. The letter says,

“We are concerned at a proposal which will put the bulk of Britain’s defence industrial base in the hands of a company predominantly owned by the French and German governments. It must be a condition of our approval that French, German, and Spanish shareholdings in the new company are removed.”

The letter also expresses reservations over the merged company’s fate, in case it is partly owned by foreign governments. If this happens, BAE Systems plc (LON:BA)’s chances to get US defence contracts will be affected. Presently BAE has a special contract with Pentagon which gives it an improved chance of handling contracts. If EAD-BAE merger fails, BAE could be acquired by independent US businesses, which could intensify its troubles.

The merger was already embroiled in controversy and this new political intervention is an added pressure. There have been rumors that the merger was taking place because of budget cuts and debilitating business, such “myths and misconceptions” were denied in a joint newspaper statement, released by CEOs of both companies.